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Troubled Airbag Supplier May Soon File for Bankruptcy

More than 15 dead, as many as 100 million vehicles recalled due to faulty airbags.

by on Nov.03, 2016

With skyrocketing costs and declining revenues, Takata appears to be headed for a bankruptcy filing.

Facing major costs and declining revenues as a result of its ongoing airbag problems, Japanese auto supplier Takata is reportedly getting ready to file for bankruptcy.

The parts maker is still looking for alternatives, but has been stymied, so far, in efforts to find a white knight buyer and may have no alternatives, especially as major customers press Takata to take the bankruptcy route, according to a report by the Japanese business newspaper Nikkei.

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“The primary collective goal is assessing all bids and reaching a resolution that is in the best interests of all our stakeholders while promoting public safety and enabling Takata to remain a viable and valued global supplier to the automotive industry,” the supplier said in a statement Thursday.

Takata has been one of the world’s largest suppliers of automotive airbag systems. But design flaws have been blamed for problems that can cause some of its bags to malfunction during a crash, spewing plastic and metal shrapnel into the passenger compartment. A 15th death linked to the problem was reported last month, the vast majority of those occurring in the United States.

Precisely why the bags malfunction has been a matter of debate. The general consensus is that the explosive ammonium nitrate used for the inflators can break down over time, especially when the vehicle is operated in hot and humid environments, such as Southern Florida. But the problem can occur in other climates, research has now shown.

A study by the National Highway Traffic Safety Administration found that in vehicles of at least a dozen years of age, at least half of the airbag systems malfunctioned. That led to the agency greatly expanding an earlier recall this year. Adding in vehicles sold in other markets, as many as 100 million cars, trucks and crossovers could eventually be targeted for recall. In its August earnings statement, Takata itself identified 84 million airbags in vehicles in the U.S., Canada and Japan alone.

(Toyota recalling 5.8 million vehicles after latest airbag death. Click Here for the story.)

A Takata airbag after a crash.

Some estimates suggest that as many as a quarter of the vehicles now on U.S. roads might eventually need to be recalled because of the Takata problem.

Complicating matters, the parts company has been accused of being slow to react to evidence of a problem. NHTSA has already find Takata heavily and the supplier agreed to major changes designed to improve its safety oversight.

But with customers demanding the suppliers cover much of their recall costs – and with some carmakers now reducing or outright severing ties, Takata’s finances have been growing perilous.

(For more on the latest Takata airbag death, Click Here.)

According to the Nikkei report, the supplier is still seeking an “out-of-court reorganization” that would “ensure its parts-supplying operations remain ongoing.” But the Japanese newspaper also said that Honda, its largest customers, as well as Japanese giant Toyota, are now “believed to be leaning in favor of bankruptcy.”

Exactly what that would do to Takata’s operations remains unclear, but it could protect the suppler from some financial pressures as it struggles to build the necessary replacement airbag inflators. A shortage of parts has delayed repairs on many affected models and some manufacturers have actually continued using suspect inflators on new vehicles, with the goal of replacing them later, before the ammonium nitrate inflator compound might begin to break down.

(NHTSA reports showing hundreds of Takata airbags rupturing in testing. For more, Click Here.)

For now, “While this effort (to find a buyer or another solution) is ongoing, Takata continues to conduct normal day-to-day operations and to meet our obligations to suppliers on a timely basis, such as ensuring there is a steady supply of replacement inflators in support of the recall,” the parts company’s statement added.

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